Much of the US’s current energy policy is based on a perceived shortage of natural gas during the 1980′s. The shortage was actually one of an inadequate distribution system that prevented transportation of adequate quantities of natural gas to Ohio and several states in the Northeast during an unusually cold winter. The distribution inequities resulted in the US congress passing laws that made it very difficult for electric generation from natural gas, resulting in increased emphasis on coal.
The US natural gas market is now in an oversupply condition, with several analysts expecting inventories to reach the maximum capacity of 3.9 trillion cubic feet later this year.
Today, LNG (natural gas that is transported on the high seas in liquid form by cooling it to a liquid state) represents about 28% of internationally traded natural gas. In 2005 LNG was about 7% of world’s natural gas demand[1]. Processing and shipping costs from Qatari to the US are estimated at $2 per million British Thermal Units (BTU). Qatar has the largest capacity for creating LNG, followed by Egypt, Algeria and Zimbabwe. Japan, South Korea, Spain, France, Italy and Taiwan use significant users of LNG. In the US, there is an existing LNG port off of Louisiana, and large LNG ports have been proposed near Long Island, Main, and the Texas/Louisiana Gulf Coast area, but are receiving significant opposition from environmental groups.
“The average U.S field requires a Nymex natural-gas price of $7.79 per million BTU’s to earn a 10% return on capital.” The current Nymex price is about $4 per million BTU, future prices are close to $6 per million BTU.[2]
In June, 2009, the Potential Gas Committee (a non-profit agency of the Colorado School of Mines) released a report suggesting that there has been a 35% increase in the year end estimate of natural gas reserves at the end of 2008 when compared with 2007. The “United States possesses a total resource base of 1,836 trillion cubic feet (Tcf). This is the highest resource evaluation in the Committee’s 44-year history. Most of the increase from the previous assessment arose from reevaluation of shale-gas plays in the Appalachian basin and in the Mid-Continent, Gulf Coast and Rocky Mountain areas.”[3]
Given that the Congress is again tinkering with US energy policy (HR 2454 by Waxman/Marley), it is hoped that they take into account these various economic factors when developing a new policy.
[1] Cook, Linda. “The Role of LNG in a Global Market” Oil and Money Conference, London, September 21, 2005 (downloaded: June 26, 2008 from www-static.shell.com/static/media/downloads/speeches/lcook_speech_oilandmoneyconf.pdf)
[2] Demning, Liam. “Exxon Mobil’s Weapons of Gas Destruction” Wall Street Journal, June 28, 2009 p c12
[3] Potential Gas Committee, “Potential Gas Committee reports unprecedented increase in magnitude of U.S. natural gas resource base” Golden, Colorado, June 18, 2009 (http://www.mines.edu/Potential-Gas-Committee-reports-unprecedented-increase-in-magnitude-of-U.S.-natural-gas-resource-base)
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